THE USE OF RETURN ON INVESTMENT
INFORMATION IN MANAGING TAX ENFORCEMENT RESOURCES COULD BE IMPROVED

Issued on September 23, 2013

Highlights

Highlights of Report Number:† 2013-10-104 to the Internal Revenue
Service Deputy Commissioners for Operations Support and the Office of the
Deputy Commissioner for Services and Enforcement.

IMPACT ON TAXPAYERS

Return
on investment (ROI) information, including both estimated ROI for new
enforcement initiatives and cost/benefit calculations based on actual program
results and costs, is an important tool available to assist IRS senior
executives in managing enforcement resources.† TIGTA found that the use of
cost/benefit information to help manage enforcement resources could be
significantly improved.† The reduction in the IRSís budget heightens the
importance of having comprehensive and reliable data to help make informed
resource allocation decisions to ensure that every tax dollar is spent wisely.

WHY TIGTA DID THE AUDIT

This audit was initiated to review the IRSís
use of ROI data in managing its enforcement resources and evaluate the IRSís
progress in developing a methodology to measure actual revenue collected from
specific new enforcement initiatives included in its annual budget requests.

WHAT TIGTA FOUND

The
IRSís use of cost/benefit information in managing its enforcement resources
could be significantly improved.† Specifically, although the IRS informed us
that it considers cost/benefit information in making resource allocation
decisions, it does not document how or to what extent it uses the information
and has no policies or procedures to guide this process.

In addition, TIGTAís review of the
cost/benefit statistics produced by the IRS identified that the cost/benefit
calculations provide an incomplete picture andunderstate the
actual results of the enforcement programs analyzed by the IRS.

TIGTA also found that the IRS continues to be unable to
measure actual revenue from new enforcement initiatives funded in prior years.†
TIGTA previously recommended that the IRS develop methods to track actual
performance results of initiatives.† Although IRS management stated in response
to this recommendation that they were working to develop a methodology to
determine actual revenue collected from specific enforcement initiatives, TIGTA
determined that the IRS has not yet made significant progress in this effort.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the Office of the Deputy Commissioner
for Services and Enforcement should develop procedures to assist in guiding the
use of enforcement program cost/benefit information in comparing resource
allocation options.† Also, the Chief Financial Officer should conduct an
analysis to determine whether there are potential variations for allocation of
enforcement revenue from the current cost/benefit model that would provide
beneficial information to the IRS.† Finally, the IRS should conduct a
feasibility analysis to identify the steps necessary to measure actual revenue
for new enforcement initiatives.

In their response to the report, IRS officials substantially
agreed with our recommendations.† The IRS plans to consider the feasibility of
developing procedures to assist in guiding the use of enforcement program
cost/benefit information when a longer-term research effort is complete and review
the current cost/benefit model with an emphasis on analyzing whether the IRS
can update the allocation of enforcement revenue to a specific enforcement
program.† The IRS also plans to document the current challenges that exist in
estimating actual revenue for new enforcement initiatives and conduct an
analysis to determine the feasibility of overcoming these challenges within
existing legislation, systems, and processes.

READ THE FULL REPORT

To view the report, including the scope, methodology,
and full IRS response, go to: †